AT&T, Verizon to see mixed Q4 wireline results, says Morgan Stanley

Verizon (NYSE: VZ) and AT&T (NYSE: T) will release their Q4 earnings next Tuesday and Wednesday, respectively, and Morgan Stanley forecasts that both telcos' wireline results will be a mixed bag.

With Verizon, the wireline headlines are predicted to center on how the telco is recovering from Hurricane Sandy.

The telco's wireline facilities, mainly in New York and New Jersey, suffered major damage as the result of massive flooding, a factor that left many of its consumer and business customers without service.

"We see stable wireline margins of 21.9% (up from 21.7% in 3Q12) and revenues declining by 2.0% as the storm as well as fiscal cliff uncertainty likely impacted both consumer and business customers," Morgan Stanley said in a research note.

Lowell McAdam, CEO and chairman of Verizon, said during the UBS Financial conference in December that the copper-to-fiber transition is an initiative that will give the company the opportunity to not only upsell consumers multiple services, but will also "reduce our maintenance costs dramatically."

In addition to driving out more fiber into the network, Verizon settled its issues with the Communications Workers of America and International Brotherhood of Workers (IBEW) unions.

Morgan Stanley noted that "Though 3Q12 saw the end of union negotiations, any financial benefit of the new contracts isn't expected until 2013."

AT&T, meanwhile, will also see decent growth in the consumer segment, while business revenues will be "sluggish" due to ongoing economic uncertainty in the United States and Europe.

"In wireline, we expect a similar tone as 3Q12 with reasonable growth in consumer, but sluggish revenues from business customer," said Morgan Stanley.

As seen in previous quarters, Morgan Stanley forecasts that AT&T will see declines in wireline broadband of 56,000, with DSL losses of 700,000 outpacing the 644,000 growth of its higher speed Fiber to the Node (FTTN)-based U-verse service. Morgan Stanley expects the company will report that it added U-verse video subscribers during the quarter.

On the U-verse side, the financial company said another key factor will be "Project VIP's expected impact on DSL and U-verse subs in 2013."